-'AD-All" 760 GENERAL ACCOUNTING OFFICE WASHINGTON DC PROGRAM ANAL-ETC F/O 5/4PATENT AND TRADEMARK AMENDMENTS OF 10SET THE SAE FOR tRJIFO--ETC(Ul

UNCLASSIFIED GAO/PA0-82-32

EIEOEEEIhhEEEIIIIIm

2.2~

1111-. 111112.

111111.25 -lii14 111111.6_

MICROCOPY RLSOLIION TLST CHART

0 REPORT BY THE

SComptroller GenerdrOF THE UNITED STATES

< Patent And Trademark Amendments Of 1980Set The Stage For Uniform Patent PracticeBy Federal Agencies

A uniform Government-wide policy for as-signing title to inventions arising from Gov-ernment-sponsored research and develop-ment has been an objective of Federalpolicymakers for nearly 20 years. Changesin the patent and trademark laws in 1980established such a policy for nonprofit orga-nizations and small business firms thatconduct federally sponsored research and

Preliminary assessment of the actions ofagenesw thus far and of the regulationsisued to put the low into effect promisethat the goal of uniformity envisioned maybe achieved.

DTIC

8 M 05 24 14NS

..... 3r4.a%

.. . . . .. . . .. . .. .. •ou ; .. . . . .. .- l . . . . ...e d. .. , , ,i , , ,

Requet tsr oples of GAD rots should be.

UI. GOMMra Aodomuuitg OffifeDocumnt llmit anod lnfwotion

PAO Seox *15G.W nbr~Md. 2076

Tolsomno (2U) 2754241 -

11. fint fire copie of indivitiual report wetree of dnng. AMuoNW ispin of boundaudi qMprt ane W.25 etch. Mddltid-. i -of uudammid reo(i.e., lieter reports)

and most otlw publistons am $1.00 amA.There wll be a 25% dksownt on all ordes tr100 oroumoreepies maINle osasinne adMNSales orders -mes be prepuid on a cob, doedi.or monyorder buis Check od be maeout to the -12 -9101dm of sune.

Ap

COMPTROLLER GENERAL OF THE UNITED STATES

WASHINGTON D.C- 205" Accession ForNTIS GRA&IDTIC TAB

3-206676 D UnannouncedsoTI Justification

\By

ox. Distribution/

The Honorable Strom Thurmond Availability CodesAvail and/orChairman, Committee on the Judiciary Ds pcial

United States Senate Special

The Honorable Peter W. Rodino, Jr.Chairman, Committee on the JudiciaryHouse of Representatives

This is the first annual report submitted by the ComptrollerGeneral under Section 6, Public Law 96-517, commonly referred toas "The Patent and Trademark Amendments of 1980." Section 6 estab-lishes a uniform policy for assigning title to inventions made bysmall business or nonprofit contractors during Government-sponsoredresearch. The section also requires the General Accounting Officeto monitor and report on the execution of the Act.

This report describes the events leading to the passage ofPublic Law 96-517 and discusses actions taken to put the Act intoeffect. The report also contains a copy of Section 6 of PublicLaw 96-517 (appendix I) and a copy of Office of Management andBudget (OMB) Circular A-124, which sets forth regulations forcarrying out the law (appendix II).

LEGISLATIVE HISTORY

Efforts to establish a uniform patent policy f:r the FederalGovernment began in 1963 when the Presidential M ndum andStatement of Government Patent Policy was issuel t memorandum,revised in 1971, provided guidance to agencies fc: gning titleto inventions resulting from federally funded reseaiIu. The guid-ance, however, was quite flexible and agencies interpreted theguidance and assigned titles in a variety of ways. So, in 1972,the Conmnission on Government Procurement recommended that the 1971memorandum be carried out promptly and uniformly. It also calledfor Government-wide legislation to allow, as a general rule, thedeveloping contractor or inventor to retain patent rights to in-ventions made with Federal support.

In 1975, the Committee on Government Patent Policy, which wasestablished by the Federal Council on Science and Technology, evalu-ated Executive agency experience under the Presidential memorandumand found that problems still existed. The Committee concludedthat legislation was needed to unify agency practices for allocat-ing rights to contractor inventions. The legislation was also

B-206676

needed to clarify when agencies had the authority to grant exclu-sive licenses for Government-owned inventions.

In 1978, the Advisory Subcommittee on Patent and InformationPolicy of the Advisory Committee on Industrial Innovation issuedthe "Draft Report on Patent Policy." It recommended transferringthe patent rights on the results of Government-sponsored researchto the private sector. In May 1979, the Comptroller General tes-tified in hearings on the patent practices of a number of Federalagencies. He reported that the goal of a uniform Federal patentpolicy had not been reached. In fact, the Comptroller Generalstated that various Executive agencies were using approximately20 different patent arrangements. I/

In 1980, the 96th Congress enacted Public Law 96-517. Thislaw provides that in most cases a nonprofit organization or smallbusiness firm may elect to retain title to inventions made duringfederally sponsored research or research and development (R&D).

RESPONSIBILITIES OF GAOUNDER PUBLIC LAW 96-517

The Comptroller General was assigned two primary responsibili-ties under Section 6 of Public Law 96-517. The first is to monitorhow well the intent of Section 6 is being achieved and determine if"any pattern of determinations [with regard to disposition of titlebecause of "exceptional circumstances"] by a Federal agency is con-trary to the policy and objectives [of the Act] or that an agency'spolicies or practices are otherwise not in conformance [with theAct]." Second, the Comptroller General is required to send a re-port at least once a year to the House and Senate Committees on theJudiciary on how the agencies are carrying out certain provisionsof the Act and "on such other aspects of Government patent policiesand practices with respect to federally funded inventions as theComptroller General believes appropriate."

The purpose of this first report under Public Law 96-517 isto

--briefly describe the steps taken to put Section 6, PublicLaw 96-517, into effect and assess whether uniformity ofpatent practice is occurring, and

--discuss the use of the Section's "exceptional circumstance"provision that allows agencies to restrict or eliminate theright to retain title of any invention made by small busi-

ness or nonprofit contractors.

1/The University and Small Business Patent Procedures Act. Hear-ings on S. 414, Committee on the Judiciary, 96th Cong., ist Sess.(1979).

2

B-206676

To do this, we

--monitored the development of OMB regulations.

--interviewed patent officials from the five agencies thatfund about 90 percent of Federal R&D. Those five agenciesare the Department of Defense (DOD), the National Aeronau-tics and Space Administration (NASA), the Department ofEnergy (DOE), the Department of Health and Human Services(HHS), and the National Science Foundation (NSF).

--examined copies of internal agency orders and other docu-ments describing changes in agency procurement proceduresresulting from the new law.

--assessed the final regulations to judge whether the require-ments in them were sufficiently precise to prevent agenciesfrom interpreting the language in them differently.

EXECUTION OF PUBLIC LAW 96-517

The primary objective of the law is to eliminate a number ofindividual agency policies on the ownership of patent rights andreplace them with a uniform Government-wide policy. This will re-duce administrative costs and provide contractors with an incen-tive to bring federally funded research to the point where it canie used commercially. While this objective is clear, its realiza-tion depends on the regulations issued by the Office of FederalProcurement Policy (OFPP) through OMB and on how the agencies in-terpret these regulations.

Development of regulations

After Public Law 96-517 was enacted on December 12, 1980, thefollowing steps were taken to develop interim and final regulations.OFPP convened an interagency task force to draft preliminary regu-lations. On July 2, 1981, OFPP published the interim regulations(OMB Bulletin 81-22) in the Federal Register. Included in thesewas a "Patent Rights Clause" to be used in all funding agreementswith nonprofit and small business contractors. The clause speci-fies the rights and obligations of the contractor and the FederalGovernment with regard to assigning title to inventions. It alsorequires that the contractor have the opportunity to retain titleto any invention resulting from the research.

Public comments on the interim regulations we:re solicited.

Based on comments from the public and from agencies, OFPP revisedthe interim regulations. The final regulations were issued onFebruary 10, 1982, with an effective date of March 1, 1982.

Agency practice under interim regulations

From July 1, 1981, to March 1, 1982, the agencies we examinedmodified their patent practices to be consistent with OMB Bulletin

3

B-206676

81-22. Thus, even during this interim period, the Act was beingcarried out uniformly. Patent officials interviewed stated thatcontracts negotiated during this period would be modified to con-form to the final regulations, if necessary.

Agencies' practices under the interim regulations differed inonly one significant way: the decision whether to use the "pre-notification provision" included in the interim regulations. Thisprovision permitted agencies to include a requirement that the con-tractor inform the agency, at least 90 days prior to submitting anarticle for publication, of the details of any patentable inventiondeveloped with Federal assistance. NASA, DOD, and DOE decided toinclude the provision, while NSF and HHS did not. Many universitiesthat receive Federal funds strongly objected to the prenotificationprovision; they considered it an infringement on their faculty'sright to publish. As a result, OFPP eliminated "prenotification"from the final regulations.

The prospects for a uniformpatent policy under thefinal regulations

We conducted a preliminary assessment of the final regulationsto determine whether the instructions in them were sufficiently pre-cise to prevent agencies from interpreting the language differently.As we have noted earlier, the prospects for a uniform practice ofpatent policy under this law depend upon how agencies interpret thefinal regulations and on the procedures used as a result of thoseinterpretations. Therefore, the clarity and specificity of theregulations are critical. If the regulations are imprecise, agen-cies might interpret them differently, and contractors might againconfront a variety of agency practices.

Our assessment indicated that the guidance given agencies bythe final regulations is specific enough to result in uniform prac-tice across agencies. The final regulations fail to provide agen-cies clear instructions in only one area, that of contractor re-porting requirements. The regulations do not specify the content,format, or frequency of each of the reports that can be requiredof contractors by agencies. But the regulations do constrain theagencies from imposing reporting requirements until the Departmentof Commerce (DOC), which has been designated the "lead agency,"devises a uniform periodic reporting system. How DOC carries outthis responsibility will determine whether contractor reportingrequirements are the same across agencies.

EXCEPTIONAL CIRCUMSTANCE DETERMINATIONS

Section 202(a)(ii) of Public Law 96-517 provides that eachnonprofit organization or small business firm may elect to retaintitle to any invention made under Federal support except

(i) when the funding agreement is for the operationof a Government-owned research or production facility,

4

B-206676

(ii) in exceptional circumstances when it is deter-mined by the agency that restriction or eliminationof the right to retain title to any subject inven-tion will better promote the policy and objectivesof [the Act], or

(iii) when it is determined by a Government authoritywhich is authorized by statute or Executive order toconduct foreign intelligence or counter-intelligenceactivities that the restriction or elimination of theright to retain title to any subject invention isnecessary to protect the security of such activities.

Determinations made under the second instance--"exceptionalcircumstances"--are to be made in writing and accompanied by awritten statement of justifying facts. This is then submittedto the Comptroller General within 30 days after the award of theapplicable funding agreement. The statute requires that the Comp-troller General decide if "any pattern of determinations by aFederal agency is contrary to the policy and objectives [of thesection or if] an agency's policies or practices are otherwisenot in conformance" with the section. If such a pattern or otherjudgment of nonconformance is observd, the Comptroller Generalis to advise the head of the agency involved.

Only limited guidance is provided in the legislative historyabout what might constitute an "exceptional circumstance," althougha report of the Senate Committee on the Judiciary states that thesedeviations from the uniform policy should be used sparingly. 1/Two examples of situations that might justify an exceptional cir-cumstance determination were given in that report. First was whena funding agreement calls for a specific product that will be re-quired to be used by regulation. The report states that, in sucha case, "it is presumed that patent incentives will not be requiredto bring the product to the market." The second example was whenthe sponsoring agency planned to fund and promote a product or pro-cess until it was put into commercial use. In this case, the re-port goes on to say that "it would be within the spirit of theAct for the agency to . . . define specific fields of use to whichit will obtain rights . .. .

As of February 15, 1982, the Comptroller General had receivedfive notices of exceptional circumstance determinations, all fromthe Department of Energy. These determinations restricted or

1/Senate Rpt. No. 96-480, 96th Cong., lst Sess., (1980). Thisreport relates to S. 414, a predecessor bill to H.R. 6933 whichbecame P.L. 96-517, and provides the only detailed explanationof "exceptional circumstances" found in the Act's legislativehistory.

r5

B-206676

eliminated right to title under a dozen separate funding agree-ments. The GAO staff is currently reviewing these five situationsin accordance with the requirements of the Act.

CONCLUSIONS

Before passage of Public Law 96-517, agency practices of as-signing title to inventions made under Federal support differedsubstantially. Enactment of this law was an effort to bring aboutuniform Government-wide patent policy and practice for nonprofitorganizations and small business firms. Based on our analysis, weconclude that this new law provides a basis for achieving the de-sired uniformity of practice across agencies. This conclusionis preliminary, however. It is based on an examination of theagencies# activities under the interim regulations and an analy-sis of the language in the final regulations, not on a review ofagencies practices under the final regulations.

Only one area--that of contractor reporting requirements--remains unresolved. However, the potential nonuniform practice inthis area can be eliminated when guidance is issued by the Depart-ment of Commerce.

It is too early to draw any conclusions about the use of the"exceptional circumstance" provision in Section 202(a)(ii) of theAct. As of February 1982, GAO had received five notices of excep-tional circumstance determinations involving a dozen funding agree-ments.

We are sending copies of this report to appropriate committeesof both Houses, Representatives and Senators with particular inter-est, the Director of the Office of Management and Budget, theDirector of the Office of Science and Technology Policy, theAdministrator of the Small Business Administration, and to chiefofficials of the related research and development agencies. Wewill also make copies available to interested organizations andindividuals, as appropriate, on request.

Comptroller Generalof the United States

6

APP3NDIX I APPENDIX I

_: 0 0, a :

- Q.- -4 u4 0i

0 L4 CL 00 1>u 5F0.C iEC , .-C >:

*044U cc j

r~ Z - 0, 2o - - =I OW C >44_ 0 0 44 4J. 0 W4 4

r 0: _c 02 w 0, >, a) -04 6 l r

0 - CD~ C -0c.Wo

do a-~.4 _00; 01c c

~~~ i-'-204 >cfE Ern- 0 >;m2~E044 . ~ 'b'

cc a,4 0 E E ErZ 0.5 > t. ",E B..54

r0 4 M- - SE .E .4 ucc

C :r8. ::0 -

rcd~z R,;cc cJ _ E c2 2-W'= 5. .. c 0 0 B 0 0.0 > c V

c M ,.E 0. 0....-Z ':: ii: 144~~ wI 20 ~ E; *rj

.C o0.S1. 2 O W2C~ " .. '- 4

~~ra1- L0' r. '- -.444 :

(z4 03 U.40 vo 0 CS R 01 0

a 44E

Ve A~ 'm-A IS8. V W

4IS P... I4 I~.

x1j 0;w a

APPENIDIX I APPENDIX I

a~~ A 2 z r

C E,= . -

-x Y.c 5.c

Ccc -S- 7

CCc C cC,::

c~3- a z.&

c- 5C ;c -. n- o.

:.C -- E -6 0 :, -c

- :; -P A - o, -z > ''

xC,~ 0 r-0S ?- ZC

.- z.-hoccC

Z6t,0 5cY E_ -41~tlwE"

E= -1to, r 0 .1 L " : = 2 r :=E

APPENDIX II APPENDIX II

EXECUTIVE OFFICE OF THE PRESIDENT

OFFICE OF MANAGEMENT AND BUDGET

WASHINGTON. D.C.

February 10, 1982

CIRCULAR No. A-124

TO THE HEADS OF EXECUTIVE DEPARTMENTS AND ESTABLISHMENTS

SUBJECT: Patents - Small Business Firms and NonprofitOrganizations

1. Purpose. This Circular provides policies, procedures,and guide ines with respect to inventions made by smallbusiness firms and nonprofit organizations, including univer-sities, under funding agreements with Federal agencies where apurpose is to perform experimental, developmental, or researchwork.

2. Rescissions. This Circular supersedes OMB Bulletin 81-22effective March 1, 1982.

3. Authority. This Circular is issued pursuant to theauthority contained in 35 U.S.C. 3206 (56 of P.L. 96-517, "ThePatent and Trademark Amendments of 1980").

4. Background. After many years of public debate on meansto enhance the utilization of the results of Government fundedresearch, Public Law 96-517 was enacted. This Act gives non-profit organizations and small businesses, with limitedexceptions, a first right of refusal to title in inventionsthey have made in performance of Government grants andcontracts. The Act takes precedence over approximately 26conflicting statutory and administrative policies.

Under the Act, the Office of Federal Procurement Policy (OFPP)is responsible for the issuance of the regulationsimplementing 35 U.S.C. 1202-204 after consultation with theOffice of Science and Technology Policy (OSTP). On July 2,1981, ON Bulletin 81-22 was issued to provide interim regula-tions while agency and public comments were sought. Based ona review of these comments, this Circular is issued toestablish permanent implementing regulations and a standardpatent rights clause.

5. Policy and Scope. This Circular takes effect on March 1,1982, and will be applicable to all funding agreements withsmall business firms and domestic nonprofit organizationsexecuted on or after that date. This includes

3

APPENDIX II APPZNDIX II

2

subcontracts at any tier made after March 1, 1982, with smallbusiness firms and nonprofit organizations even if the primefunding agreement was made prior to March 1, 1982. Unlessprohibited by law, agencies are encouraged to treat subjectinventions made under funding agreements made prior to July 1,1981, in substantially the same manner as contemplated by P.L.96-517 and this Circular for inventions made under fundingagreements entered into subsequent to July 1, 1981. This canbe accomplished through the granting of waivers of title onterms and conditions substantially similar to those set forthin the standard clause of Attachment A.

Agencies should be alert to determining whether amendmentsmade after March 1, 1982, to funding agreements entered intoprior to July 1, 1981, result in new funding agreementssubject to this Circular and the Act. Renewals and continua-tions after March 1, 1982, of funding agreements entered intoprior to July 1, 1981, should be normally treated as newfunding agreements.

This Circular is intended to establish uniform and coordinatedimplementation of 35 U.S.C. §200-206 so as to foster thepolicy and objectives set forth in 35 U.S.C. §200.

6. Definitions. As used in this Circular --

a. The term "funding agreement" means any contract,grant, or cooperative agreement entered into between anyFederal agency, other than the Tennessee Valley Authority, andany contractor for the performance of experimental, develop-mental, or research work funded in whole or in part by theFederal Government. Such term includes any assignment,substitution of parties, or subcontract of any type enteredinto for the performance of experimental, developmental, orresearch work under a funding agreement, as herein defined.

b. The term "contractor" means any person, smallbusiness firm or nonprofit organization that is a party to afunding agreement.

c. The term "invention" means any invention ordiscovery which is or may be patentable or otherwise protect-able under Title 35 of the United States Code.

d. The term "subject invention" means any invention ofa contractor conceived or first actually reduced to practicein the performance of work under a funding agreement.

e. The term "practical application" means tomanufacture in the case of a composition or product, topractice in the case of a process or method, or to operate inthe case of a machine nr system; and, in each case, under such

4

APPENDIX II APPENDIX II

3

conditions as to establish that the invention is beingutilized and that its benefits are, to the extent permitted bylaw or Government regulations, available to the public onreasonable terms.

f. The term "made' when used in relation to anyinvention means the conception or first actual reduction topractice of such invention.

g. The term Osmall business firm* means a smallbusiness concern as defined at section 2 of Public Law 85-536(15 U.S.C. §632) and implementing regulations of theAdministrator of the Small Business Administration. For thepurpose of this Circular, the size standards for smallbusiness concerns involved in Government procurement andsubcontracting at 13 CFR 121.3-8 and 121.3-12, respectively,will be used.

h. The term "nonprofit organization" meansuniversities and other institutions of higher education or anorganization of the type described in section 501(c)(3) of theInternal Revenue Code of 1954 (26 U.S.C. 9501(c)) and exemptfrom taxation under section 501(a) of the Internal RevenueCode (26 U.S.C. 9501(a)) or any nonprofit scientific' oreducational organization qualified under a state nonprofitorganization statute.

7. Use of the Patent Rights (Small Business Firm orNonprofit Organization) (March 1982, Clause.

a. Each funding agreemen. awarded to a small businessfirm or domestic nonprofit organization which has as a purposethe performance of experimental, developmental or researchiWork shall contain the "Patent Rights (Small Business Firm orNonprofit Organization) (March 1982)" clause set forth inAttachmert A with such modifications and tailoring as may beauthorized in Part 8, except that the funding agreement maycontain alternative provisions--

(1) when the funding agreement is for the operationof a Government-owned research or production facility; or

(2) in exceptional circumstances when it isdetermined by the agency that restriction or elimination ofthe right to retain title to any subject invention will betterpromote the policy and objectives of Chapter 38 of Title 35 ofthe United States Code; or

- . .r. . ° . . . . . . . .

APPENDIX II APPenDIX 1I

4

(3) when it is determined by a Government authoritywhich is authorized by statute or executive order to conductforeign intelligence or counterintelligence activities thatthe restriction or elimination of the right to retain title toany subject invention is necessary to protect the security ofsuch activities.

b. (1) Any determination under Part 7.a.(2) of thisCircular will be in writing ard accompanied by a writtenstatement of facts justifying the determination. The state-ment of facts will contain such information as the fundingFederal agency deems relevant and, at minimum, will (i)identify the small business firm or nonprofit organizationinvolved, (ii) describe the extent to which agency actionrestricted or eliminated the right to retain title to asubject invention, (iii) state the facts and rationalesupporting the agency action, (iv) provide supporting documen-tation for those facts and rationale, and (v) indicate thenature of any objections to the agency action and provide anydocumentation in which those objections appear. A copy ofeach such determination and written statement of facts will besent to the Comptroller General of the United States within 30days after the award of the applicable funding agreement. Incases of determinations application to small business firms,copies will also be sent to the Chief Counsel for Advocacy ofthe Small Business Administration.

(2) To assist the Comptroller General toaccomplish his or her responsibilities under 35 U.S.C. 3202,each Federal agency that enters into any funding agreementswith nonprofit organizations or small business firms duringthe applicable reporting period shall accumulate and, at therequest of the Comptroller General, provide the ComptrollerGeneral or his or her duly authorized representative the totalnumber of prime funding agreements entered into with smallbusiness firms or nonprofit organizations that contain thepatent rights clause of Attachment A during each period ofOctober 1 through September 30, beginning October 1, 1982.

c. (1) Agencies are advised that Part 7.a. applies tosubcontracts at any tier under prime funding agreements withcontractors that are other than small business firms or non-profit organizations. Accordingly, agencies should takeappropriate action to ensure that this requirement isreflected in the patent clauses of such prime funding agree-ments awarded after March 1, 1982.

(2) In the event an agency has outstanding primefunding agreements that do not contain patent flow-downprovisions consistent with either this Circular or OMBBulletin 81-22 (if it was applicable at the time the funding

6

I "PID.1 X I I A t cD 1:X I i

5

agreement was awarded), the agency shall take appropriateaction to ensure that small business firms or domestic non-profit organization subcontractors under such prime fundingagreements that received their subcontracts after July 1,1981, will receive rights in their subject inventions that areconsistent with P.L. 96-517 and this Circular. Appropriateactions might include (i) amendment of prime contracts and/orsubcontracts; (ii) requiring the inclusion of the clause ofAttachment A as a condition of agency approval of a subcon-tract; or (iii) the granting of title to the subcontractor toidentified subject inventions on terms substantially the sameas contained in the clause of Attachment A in the event thesubcontract contains a "deferred determination" or"acquisition by the Government" type of patent rights clause.

d. To qualify for the clause of Attachment A, aprospective contractor may be required by an agency to certifythat it is either a small business firm or a domestic non-profit organization. If the agency has reason to question thestatus of the prospective contractor as a small business firmor domestic nonprofit organization, it may file a protest inaccordance with 13 C.F.R. 121.3-5 if small business firmstatus is questioned or require the prospective contractor tofurnish evidence to establish its status as a domestic non-profit organization.

8. Instructions for Modification and Tailoring of the Clauseof Attachment A.

a. Agencies should complete the blank in paraqraphg.(2) of the clause of Attachment A in accordance with theirown or applicable Government-wide regulations such as the FPRor DAR. The flow-down provisions of the clause cited by theagency should, of course, reflect the requirement of Part7.c.(l).

b. Agencies should complete paragraph 1."Communications" at the end of the clause of Attachment A bydesignating a central point of contact for communications onmatters relating to the clause. Additional instructions oncommunications may also be included in paragraph 1.

c. Agencies may replace the italicized or underlinedwords and phrases wiLth Lose appropriate to the particularfunding agreement. For example "contract" could be replacedby "grant", "contractor" by 'grantee", and 'contractin?officer" by "grants oficer." Depending on its use, "Federaagency" can be replaced eithar by the identification oI -Meagency or by the specification of the particular office orofficial within that agency.

7

APPENDIX II APPFNDIX II

6

d. When the agency head or duly authorized designeedetermines at the time of contracting with a small businessfirm or nonprofit organization that it would be in thenational interest to acquire the right to sublicense foreigngovernments or international organizations pursuant to anyexisting treaty or agreement, a sentence may be added at theend of paragraph b. of the clause of Attachment A as follows:

"This license will include the right of

the Government to sublicense foreigngovernments and internationalorganizations pursuant to the followingtreaties or international agreements:

; or pursuant to anyfuture treaties or agreements withforeign governments or internationalorganizations."

The blank in the above should be completed with the names ofapplicable existing treaties or international agreements. Theabove language is not intended to apply to treaties or agree-ments that are in effect on the date of the award which are notlisted. The above language may be modified by agencies bydeleting the reference to future treaties or agreements or byotherwise more narrowly defining classes of future treaties oragreements. The language may also be modified to make clearthat the rights granted to the foreign government or inter-national organization may be for additional rights beyond alicense or sublicense if so required by the applicable treatyor international agreement. For example, in some casesexclusive licenses or even the assignment of title in theforeign country involved might be required. Agencies may alsomodify the language above to provide for the direct licensingby the contractor of the foreign government or internationalorganization.

e. To the extent not required by other provisions ofthe funding agreement, agencies may add additional subpara-graphs to paragraph (f) of the patent rights clause of Attach-ment A to require the contractor to do one or more of thefollowing:

(1) Provide periodic (but no more frequently thanannually) listings of all subject inventions required to bedisclosed during the period covered by the report;

(2) Provide a report prior to the close-out of afunding agreement listing all subject inventions or statingthat there were none;

(3) Provide notification of all subcontracts forexperimental, developmental, or research work; and

8

APPENDIX I! Ai " _'PNL;

(4) Provide, upon request, the filing date, serialnumber and title; a copy of the patent application; and patentnumber and issue date for any subject invention in any countryin which the contractor has applied for patents.

Part 9. Publication or Release of Invention Disclosures

a. 35 U.S.C. 1205 provides as follows:

"Federal agencies are authorized to withholdfrom disclosure to the public information dis-closing any invention in which the FederalGovernment owns or may own a right, title, orinterest (including a nonexclusive license)for a reasonable time in order for a patentapplication to be filed. Furtheimore, Federalagencies shall not be required to releasecopies of any document which is part of anapplication for patent filed with the UnitedStates Patent and Trademark Office or with anyforeign patent office."

b. To the extent authorizpd by 35 U.S.C. 3205, agenciesshall not disclose to third parties pursuant to requests underthe Freedom of Information Act (FOIA) any information disclos-ing a subject invention for a reasonable time in order for apatent application to be filed. With respect to subjectinventions of contractors that are small business firms ornonprofit organizations, a reasonable time shall be the timeduring which an initial patent application may be filed underparagraph c. of the clause of Attachment A or such otherclause that may be used in the funding agreement. However, anagency may disclose such subject inventions under the FOIA, atits discretion, after a contractor has e3ected not to retaintitle or after the time in which the contractor is required tomake an election if the contractor has not made an electionwithin that time. Similarly, an agency may honor an FOIArequest at its discretion if it finds that the same informa-tion has previously been published by the inventor, contrac-tor, or otherwise. If the agency plans to file itself whenthe contractor has not elected title, it may, of course,continue to avail itself of the authority of 35 U.S.C. 3205.

c. As authorized by 35 U.S.C. 5205, Federal agenciesshall not release copies of any document which is part of anapplication for patent filed on a subject invention to which asmall business firm or nonprofit organization elected toretain title.

d. A number of agencies have policies to encouragepublic disse ination of the results of work supported by the

APPENDIX II APPENDIX Ii

8

agency through publication in Government or other publicationsof technical reports of contractors or others. In recognitionof the fact that such publication, if it included descriptionsof a subject invention, could create bars to obtaining patentprotection, it is the policy of the executive branch thatagencies will not include in such publication programs, copiesof disclosures of inventions submitted by small business firmsor nonprofit organizations, pursuant to paragraph c. of theclause of Attachment A, except that under the same circum-stances under which agencies are authorized to release suchinformation pursuant to FOIA requests under Part 9.b. above,agencies may publish such disclosures.

e. Nothing in this Part is intended to precludeagencies from including in the publication activitiesdescribed in the first sentence of Part 9.d., the publicationof materials describing a subject invention to the extent suchmaterials were provided as part of a technical report or othersubmission of the contractor which were submittedindependently of the requirements of the patent rights provi-sions of the contract. However, if a small business firm ornonprofit organization notifies the agency that a particularreport or other submission contains a disclosure of a subjectinvention to which it has elected or may elect title, theagency will use reasonable efforts to restrict its publicationof the material for six months from date of its receipt of thereport or submission or, if earlier, until the contractor hasfiled an initial patent application. Agencies, of course,retain the discretion to delay publication for additionalperiods of time.

f. Nothing in this Part 9 is intended to limit theauthority of agencies provided in 35 U.S.C. 5205 in circum-stances not specifically described in this Part 9.

10. Reporting on Utilization of Subject Inventions.

a. Paragraph h. of the clause of Attachment A providesthat agencies have the right to receive periodic reports fromthe contractor on utilization of inventions. In accordancewith such instructions as may be issued by the Department ofCommerce, agencies shall obtain such information from theircontractors. Pending such instructions, agencies should notimpose reporting requirements. The Department of Commerce andthe agencies, in conjunction with representatives of smallbusiness and nonprofit organizations, shall work together toestablish a uniform periodic reporting system.

b. To the extent any such data or information suppliedby the contractor is considered by the contractor, or itslicensee or assignee, to be privileged and confidential and isso marked, agencies shall not, to the extent permitted by

10

A~PPNDrX [I APPEL*4DIX Ii

9

35 U.S.C. 9202(c)(5), disclose such information to personsoutside the Government.

11. Retention of Rights by Inventor. Agencies which allow aninventor to retain rights to a subject invention made under afunding agreement with a small business firm or nonprofitorganization contractor, as authorized by 35 U.S.C. 9202(d),will impose upon the inventor at least those conditions thatwould apply to a small business firm contractor under para-graphs d.(ii) and (iii); f.(4); h.; i.; and J. of the clauseof Attachment A.

12. Government Assignment to Contractor of Rights inInvention of Government Employee. In any case when a Federalemployee is a co-inventor of any invention made under afunding agreement with a small business firm or nonprofitorganization and the Federal agency employing such co-inventortransfers or reassigns the right it has acquired in thesubject invention from its employee to the contractor asauthorized by 35 U.S.C. 202(e), the assignment will be madesubject to the same conditions as would apply to the contrac-tor under the clause of Attachment A.

13. Exercise of March-in Rights.

a. The following procedures shall govern the exerciseof the march-in rights of the agencies set forth in 35 U.S.C.§203 and the clause at Attachment A.

b. Whenever an agency receives information that itbelieves might warrant the exercise of march-in rights, beforeinitiating any march-in proceeding in accordance with theprocedures of Part 13.c.-h. below, it shall notify the con-tractor in writing of the information and request informalwritten or oral comnents from the contractor. In the absenceof any couments from the contractor within 30 days, the agencymay, at its discretion, proceed with the procedures below. Ifa comment is received, whether or not within 30 days, then theagency shall, within 60 days after it receives the comment,either initiate the procedures below or notify the contractor,in writing, that it will not pursue march-in rights based onthe information about which the contractor was notified.

c. A march-in proceeding shall be initiated by theissuance of a written notice by the agency to the contractorand its assignee or exclusive license@# as applicable, statingthat the agency is considering the exercise of march-in

rights. The notice shall state the reasons for the proposedmarch-in in terms sufficient to put the contractor on noticeof the facts upon which the action would be based and shallspecify the field or fields of use in which the agency is con-sidering requiring licensing. The notice shall advise the

.... ... . . + .... . . , 1 1

AP P'_NL] 1 , APPENDIrX 1I

fs

contractor (assignee or exclusive licensee) of its rights, assei: forth in this Circular and in any supplemental agencyregulations. The determination to exercise march-in rightsshall be made by the head of the agency or designee, except asprovided in part 13.j. below.

d. Within 30 days after receipt of the written noticeof march-in, the contractor (assignee or exclusive licensee)ma: submit, in person, in writing, or through a representa-tP, , information or argument in opposition to the proposedmech-in, including any additional specific information whichrases a genuine dispute over the material facts upon whichth march-in is based. If the information presented raises agenuine dispute over the material facts, the head of theagency or designee shall undertake or refer the matter toanother official for fact-finding.

e. Fact-finding shall be conducted in accordance withthe procedures established by the agency. Such proceduresshall be as informal as practicable and be consistent withprinciples of fundamental fairness. The procedures shouldafford the contractor the opportunity to appear with counsel,submit documentary evidence, present witnesses and confrontsuch persons as the agency may present. A transcribed recordshall be made and shall be available at cost to the contractorupon request. The requirement for a transcribed record may bewaived by mutual agreement of the contractor and the agency.Any portion of a fact-finding hearing that involves testimonyor evidence relating to the utilization or efforts at obtain-ing utilization that are being made by the contractor, itsassignee, or licensees shall be closed to the public, includ-ing potential licensees.

f. The official conducting the fact-finding shallprepare written findings of fact and transmit them to the headof the agency or designee promptly after the conclusion of thefact-finding proceeding. A copy of the findings of fact shallbe sent to the contractor (assignee or exclusive licensee) byregistered or certified mail.

g. In cases in which fact-finding has been conducted,the head of the agency or designee shall base his or herdetermination on the facts found, together with any otherinformation and argument submitted by the contractor (assigneeor exclusive licensee), and any other Information in theadministrative record. The consistency of the exercise ofmarch-in rights with the policy and objectives of 35 U.S.C.1200-206 and this Circular shall also be considered. In casesreferred for fact-finding, the head of the agency or designeemay reject only those facts that have been found that areclearly erroneous. Written notice of the determinationwhether march-in rights will be exercised shall be made by the

12

-~?/

AI PPNDEX TI APPENDIX II

11

head of the agency or designee and sent to the contractor(assignee or exclusive licensee) by certified or registeredmail within 90 days after the completion of fact-finding orthe proceedings will be deemed to have been terminated andthereafter no march-in based on the facts and reasons uponwhich the proceeding was initiated may be exercised.

h. An agency may, at any time, terminate a march-inproceeding if it is satisfied that it does not wish to exer-cise march-in rights.

i. The procedures of this Part shall also apply to theexercise of march-in rights against inventors receiving titleto subject inventions under 35 U.S.C. 1202(d) and, for thatpurpose, the term Ocontractorw as used in this Part shall bedeemed to include the inventor.

j. Notwithstanding the last sentence of Part 13.c., adetermination to exercise march-in in cases where the subjectinvention was made under a contract may be made initially bythe contracting officer in accordance with the procedures ofthe Contract Disputes Act. In such cases, the procedures ofthe Contract Disputes Act will apply in lieu of those in Parts13.d.-g. above (except that the last sentence of Part 13.e.shall continue to apply). However, when the procedures ofthis Part 13.j. are used, the contractor, assignee, orexclusive license will not be required to grant a license andthe Government will not grant any license until after either:(1) 90 days from the date of the contractor's receipt of thecontracting officer's decision, if no appeal of the decisionhas been made to an agency board of contract appeals, or if noaction has been brought under Section 10 of the Act withinthat time; or (2) the board or court, as the case may be, hasmade a final decision in cases when an appeal or action hasbeen brought within 90 days of the contracting officer'sdecision.

k. Agencies are authorized to issue supplementalprocedures, not inconsistent herewith, for the conduct ofmarch-in proceedings.

14. Apeale.

a. The agency official initially authorized to take anyof the following actions shall provide the contractor with awritten statement of the basis for his or her action at thetime the action is taken, including any relevant facts thatwere relied upon in taking the action:

(1) A refusal to grant an extension under paragraphc.(4) of the clause of Attachment A.

13

A PN,:;" 11 AiPPE.,' II

12

(2) A request for a conveyance of title underparagraph d. of the clause of Attachment A.

(3) A refusal to grant a waiver under paragraph i.of the clause of Attachment A.

(4) A refusal to approve an assignment underparagraph k.(l) of the clause of Attachment A.

(5) A refusal to approve an extension of theexclusive license period under paragraph k.(2) of the clauseof Attachment A.

b. Each agency shall establish and publish proceduresunder which any of the agency actions listed in Part 14.a.above may be appealed to the head of the agency or designee.Review at this level shall consider both the factual and legalbasis for the action and its consistency with the policy andobjectives of 35 U.S.C. §200-206 and this Circular.

c. Appeals procedures established under Part 14.b.above shall include administrative due process procedures andstandards for fact-finding at least comparable to those setforth in Part 13.e.-g. of this Circular whenever there is adispute as to the factual basis for an agency request for aconveyance of title under paragraph d. of the clause ofAttachment A, including any dispute as to whether or not aninvention is a subject invention.

d. To the extent that any of the actions described inPart 14.a. are subject to appeal under the Contracts DisputeAct, the procedures under that Act will satisfy the require-ments of Parts 14.b. and c. above.

15. Licensing nf Background Patent Rights to Third Parties.

a. A funding agreement with a small business firm or adomestic nonprofit organization will not contain a provisionallowing a Federal agency to require the licensing to thirdparties of inventions owned by the contractor that are notsubject inventions unless such provision has been approved bythe agency head and a written justification has been signed bythe agency head. Any such provision will clearly statewhether the licensing may be required in connection with thepractice of a subject invention, a specifically identifiedwork object, or both. The agency head may not delegate theauthority to approve such provisions or to sign the justifica-tion required for such provisions.

b. A Federal agency will not require the licensing ofthird parties under any such provision unless the agency headdetermines that the use of the invention by others is

14

NPPENDIX Il APPENDIX II

13

necessary for the practice of a subject invention or for theuse of a work object of the funding agreement and that suchaction is necessary to achieve practical application of thesubject invention or work object. Any such determination willbe on the record after an opportunity for an agency hearing,and the contractor shall be given prompt notification of thedetermination by certified or registered mail.

16. Administration of Patent Rights Clause.

a. It is important that the Government ani thecontractor know and exercise their rights in subject inven-tions in order to ensure their expeditious availability to thepublic, to enable the Government,,. the contractor, and thepublic to avoid unnecessary payment of royalties, and todefend themselves against claims and suits for patentinfringement. To attain these ends, contracts should be soadministered that:

(1) Inventions are identified, disclosed, and anelection is made as required by the contract clause.

(2) The rights of the Government in such inventionsare established;

(3) When appropriate, patent applications aretimely filed and prosecuted by contractors or by theGovernment;

(4) The rights in patent applications aredocumented by formal instruments such as licenses orassignments;

(5) Expeditious commercial utilization of suchinventions is achieved.

b. With respect to the conveyance of license orassignments to which the Government may be entitled under theclause of Attachment A, agencies should follow the guidanceprovided in 41 CFR 1-9.109-5 or 32 CtR 9-109.5.

c. In the event a subject invention Is made underfunding agreements of more than one agency, at the request ofthe contractor or on their own initiative, the agencies shalldesignate one agency as responsible for administration of therights of the Government in the invention.

17. Modification of Existing Agency Regulations.

a. Existing agency patent regulations or otherpublished policies concerning inventions made under fundingagreements shall be modified as necessary to make then

15

APPENDIX II APPENDIX II

14

consistent with this Circular and 35 U.S.C. 1200-206. Agencyregulations shall not be more restrictive or burdensome thanthe provisions of this Circular.

b. After March 1, 1982, this Circular and 35 U.S.C.8200-206 shall take precedence over any conflicting agencyregulations or policies.

18. Lead Agency Designation. In order to assist the Officeof Federal Procurement Policy to ensure that 35 U.S.C. 5200-206 and this Circular are implemented in a uniform and consis-tent manner, the following responsibilities are assigned tothe Department of Commerce (hereafter referred to as OTheDepartmentu). Other agencies shall fully cooperate and assistin the carrying out of these responsibilities:

a. The Department will monitor agency regulations andprocedures for consistency with the Act and this Circular, andit shall provide recommendations to OFPP and agencies wheneverit finds inconsistencies.

b. The Department will consult with representatives of19 agencies and contractors to obtain advice on --

(1) the development of the periodic reportingsystem required under Part 10 of this Circular, and

(2) changes in this Circular which may be neededbased on actual experience under the Circular.

c. The Department will accumulate, maintain, andpublish such statistics and analysis on utilization andactivities under this Circular and under Government patentpolicies and practices generally, as may be agreed to betweenthe Department and OFPP.

d. The Department will make recommendations to OFPP onchanges that may be needed in this Circular.

19. Sunset Review Date. This Circular shall have a policyreview no later than three years from the date of itsissuance.

20. rnquiries. All questions or inquiries should besubmitted to the Office of Management and Budget, Office ofFederal Procurement Policy, telephone number (202) 395-6810.

Administrator Director

16

APP2NDIX II APPENDIX II

ATTACHMENT ACIRCULAR A-124

The following is the standard patent rights claused to be usedin funding agreements as provided in Part 7.

PATENT RIGHTS (Small Business Firms andNonprofit Organizations) (March 1982)

a. Definitions

(1) "Invention" means any invention or discoverywhich is or may be patentable or otherwise protectable underTitle 35 of the United States Code.

(2) "Subject Invention" means any invention of thecontractor conceived or first actually reduced to practice inthe performance of work under this contract.

(3) "Practical Application" means to manufacture inthe case of a composition or product, to practice in the caseof a process or method, or to operate in the case of a machineor system; and, in each case, under such conditions as toestablish that the invention is being utilized and that itsbenefits are, to the extent permitted by law or Governmentregulations, available to the public on reasonable terms.

(4) "Made" when used in relation to any inventionmeans the conception or first actual reduction to practice ofsuch invention.

(5) "Small Business Firm" means a small businessconcern as defined at Section 2 of Public Law 85-536 (15U.S.C. 5632) and implementing regulations of the Administratorof the Small Business Administration. For the purpose of thisclause, the size standards for small business concernsinvolved in Government procurement and subcontracting at 13C.F.R. 121.3-8 and 13 C.P.R. 121.3-12, respectively, will beused.

(6) "Nonprofit Oiganization" means a university orother institution of ngher education or an organization ofthe type described in section 501(c) (3) of the InternalRevenue Code of 1954 (26 USC 3501(c)) and exempt from taxationunder section 501(a) of the Internal Revenue Code (26 USC5501(a)) or any nonprofit scientific or educational organiza-tion qualified under a state nonprofit organization statute.

17

APPENDTX T1 APPENDIX II

2

b. Allocation of Principal Rights

The contractor may retain the entire right, title,and interest throughouE the world to each subject inventionsubject to the provisions of this clause and 35 U.S.C. 203.With respect to any subject invention in which the contractorretains title, the Fedaral Government shall have a non-exclu-sive, non-transfecable, irrevnrable, paid-up license topractice or have prActiced for or on behalf of the UnitedStates the subject invention throughout the world.

c. Invention Disclosure, Election of Title and Filingof Patent Applications by Contractor.

(1) The contractor will disclose each subjectinvention to the Federal agenc within two months after theinventor discloses it in writing to contractor personnelresponsible for patent matters. The disclosure to the agencyshall be in the form of a written report and shall identitythe contract under which the invention was made and theinven-tor s). It shall be sufficiently complete in teehnicaldetail to convey a clear understanding, to the extent known atthe time of the disclosure, of the nature, purpose, operation,a'd the physical, chemical, biological or electrical charac-teristics of the invention. The disclosure shall alsoidentify any puhlication, on sale or public use of the inven-tion and whether a manuscript describing the invention hasbeen submitted for publication and, if so, whether it has beenaccepted for publication at the time of disclosure. Inaddition, after disclosure to the agency, the contractor willpromptly notify the agency of the acceptance of any manuscriptdescribing the inventinfor publication or of any on sale orpublic use planned by the contractor.

(2) The contractor will elect in writing whether ornot to retain title to any such invention by notifying theFederal agency within twelve months of disclosure to the con-tractor; provided that in any case where publication, on saeo-r puic use has initiated the one year statutory periodwherein valid patent protection can-still be obtained in theUnited States, the period for election of title may beshortened by the a enc to a date that is no more than 60 daysprior to the end or the statutory period.

(3) The contractor will file its initial patentapplication on an elected invention within two years afterelection or, if earlier, prior to the end of any statutoryperiod wherein valid patent protection can be obtained in theUnited States after a pi hlication, on sale, or public use.The contractor will file patent applications in additionalcountries wit'in either ten months of the correspondinginitial patent application or six months from the date

18

APPENDIX II APPENDIX II

3

permission is granted by the Commissioner of Patents and

Trademarks to file foreign patent applications where such

filing has been prohibited by a Secrecy Order.

(4) Requests for extension of the time for

disclosure to the a ency, election, and filing may, at thediscretion of the funding Federal agency, be granted.

d. Conditions When the Government May Obtain Title.

(1) The contractor will convey to the Federalagency, upon written request, title to any subject invention:

(i) If the contractor fails to disclose orelect the subject invention within the times specified in c.above, or elects not to retain title.

(ii) In those countries in which thecontractor fails to file patent applications within the timesspecified in c. above; provided, however, that if thecontractor has filed a patent application in a country afterthe times specified in c., above, but prior to its receipt ofthe written request of the Federal agency, the contractorshall continue to retain titleIn that country.

(iii) In any country in which Ukcontractor decides not to continue the prosecution of anyapplication for, to pay the maintenance fees on, or defend inreexamination or opposition proceeding on, a patent on asubject invention.

e. Minimum Rights to Contractor

(1) The contractor will retain a nonexclusive,royalty-free license throughout the world in each subjectinvention to which the Government obtains title except if thecontractor fails to disclose the subject invention within thetimes specified in c., above. The contractor's licenseextends to its domestic subsidiaries and affiliates, if any,within the corporate structure of which the contractor is aparty and includes the right to grant sublicenses of the samescope to the extent the contractor was legally obligated to doso at the time the contract was awarded. The license istransferable only wittEWe-approval of the funding Federalagency except when transferred to the successor or that partyOfUEe contractor's business to which the invention pertains.

(2) The contractor's domestic license may berevoked or modified by the funding Federal agency to theextent necessary to achieve expeditious practical application

19

APPENDIX II APPENDIX II

4

of the subject invention pursuant to an application for an

exclusive license submitted in accordance with applicable

provisions in the Federal Property Management Regulations.This license will not be revoked in that field of use or the

geographical areas in which the contractor has achievedpractical application and continues to make the benefits of

the invention reasonably accessible to the public. The

license in any foreign country may be revoked or modified atthe discretion of the funding Federal agency to the extent the

contractor, its licensees, or its domestic subsidiaries or

affili have failed to achieve practical application inthat foreign country.

(3) Before revocation or modification of thelicense, the funding Federal agency will furnish thecontractor a written notice of its intention to revoke ormodify the license, and the contractor will be allowed thirtydays (or such other time as may be authorized by the fundingFederal agency for good cause shown by the contractor afterthe notice to show cause why the license should not be revokedor modified. The contractor has the right to appeal, inaccordance with applicable regulations in the Federal PropertyManagement Regulations concerning the licensing ofGovernment-owned inventions, any decision concerning therevocation or modification of its license.

f. Contractor Action to Protect the GovernmentsInterest

(1) The contractor agrees to execute or to haveexecuted and promptly aeliver to the Federal agency allinstruments necessary to (i) establish or confrm the rightsthe Government has throughout the world in those subjectinventions to which the contractor elects to retain title, and(ii) convey title to the Veder a anc when requested underparagraph d. above, and o ena le e Government to obtainpatent protection throughout the world in that subjectinvention.

(2) The contractor agrees to require, by writtenagreement, its employees, other than clerical and non-technical employees, to disclose promptly in writing to per-sonnel identified as responsible for the administration ofpatent matters and in a format suggested by the contractor

* each subject invention made under contract in order that thicontractor can comply with the disclosure provisions ofparagraph *c. above, and to execute all papers necessary tofile patent applications on subject inventions and toestablish the Government's rights in the subject inventions.This disclosure format should require, as a minimum, the

20

A'PPENDIX II APPENDIX 11

5

information required by c.(1) above. The contractor shallinstruct such employees through employee agreements or othersuitable educational programs on the importance of reportinginventions in sufficient time to permit the filing of patentapplications prior to U.S. or foreign statutory bars.

(3) The contractor will notify the Federal agencof any decision not to continue the prosecution of a patentapplication, pay maintenance fees, or defend in a reexamina-tion or opposition proceeding on a patent, in any country, notless than thirty days before the expiration of the responseperiod required by the relevant patent office.

(4) The contractor agrees to include, within thespecification of any united States patent application and anypatent issuing thereon covering a subject invention, thefollowing statement, "This invention was made with Governmentsupport under (identify the contract) awarded by (identify theFederal agency). The Government has certain rights in thisi ntion.w

g. Subcontracts

(1) The contractor will include this clause,suitably modified to identify the parties, in all subcon-tracts, regardless of tier, for experimental developmental orresearch work to be performed by a small business firm ordomestic nonprofit organization. The subcontractor willretain all rights provided for the contractor in this clause,and the contractor will not,as part of the consideration forawarding the subcontract, obtain rights in the subcontractor'ssubject inventions.

(2) The contractor will include in all othersubcontracts, regardless of tier, for experimental, develop-mental or research work the patent rights clause required by(cite section of agency implementing regulations, FPR, orDAR).

(3) In the case of subcontracts, at any tier, whenthe prime award with the Federal agency was a contract (butnot a grant or cooperative agreement), the agency, subcontrac-tor, and the contractor agree that the mutual obligations ofthe parties created by this clause constitute a contractbetween the subcontractor and the Federal agency with respectto those matters covered by this clause.

h. Reporting on Utilization of Subject Inventions

The contractor agrees to submit on request periodicreports no more frequently than annually on the utilization of

21

APPENDIX II APPE.4DIX 1i

6

A subject invention or on efforts at obtaining such utiliza-tion that are being made by the contractor or its licensees orassignees. Such reports shall include nformation regardingthe status of development, date of first commercial sale oruse, gross royalties received by the contractor, and suchother data and information as the a ency may reasonablyspecify. The contractor also agrees t provide additionalreports as may be requested by the agency in connection withany march-in proceeding undertaken by E agency in accordancewith paragraph J. of this clause. To the extent data orinformation supplied under this section is considered by thecontractor, its licensee or assignee to be privileged and con-fidential and is so marked, the agenc agrees that, to theextent permitted by 35 USC 9202(c(51, it will not disclosesuch information to persons outside the Government.

i. Preference for United States Industry

Notwithstanding any other provision of this clause,the contractor agrees that neither it nor any assignee willgrant to any person the exclusive right to use or sell anysubject invention in the United States unless such personagrees that any products embodying the subject invention orproduced through the use of the subject invention will bemanufactured substantially in the United States. However, inindividual cases, the requirement for such an agreement may bewaived by the Federal agency upon a showing by the contractoror its assignee that reasonable but unsuccessful efforts havebeen made to grant licenses on similar terms to potentiallicensees that would be likely to manufacture substantially inthe United States or that under the circumstances domesticmanufacture is not commercially feasible.

j. March-in Rights

The contractor agrees that with respect to anysubject invention in which it has acquired title, the Federala has the right in accordance with the proceures-TRIUTiiiuar A- _ (and agency regulations at ) to require thecontractor, an assignee or exclusive licensee of a subjectinvention to grant a non-exclusive, partially exclusive, orexclusive license in any field of use to a responsible appli-cant or applicants, upon terms that are reasonable under thecircumstar-es, and if the contractor assignee, or exclusivelicensee refuses such a request, the Federal a enc has theright to grant such a license itself it ederal agencydetermines that:

(1) Such action is necessary because thecontractor or assignee has not taken, or Is not expected to

22

APPENDIX II APPENDIX II

7

take within a reasonable time, effective steps to achievepractical application of the subject invention in such fieldof use.

(2) Such action is necessary to alleviate health orsafety needs which are not reasonably satisfied by thecontractor, assignee, or their licensees;

(3) Such action is necessary to meet requirementsfor public use specified by Federal regulations and suchrequirements are not reasonably satisfied by the contractor,assignee, or licensees; or

(4) Such action is necessary because the agreementrequired by paragraph i of this clause has not been obtainedor waived or because a licensee of the exclusive right to useor sell any subject invention in the United States is inbreach of such agreement.

k. Special Provisions for Contracts with Non-profitOrganizations

If the contractor is a non-profit organization, itagrees that:

(1) Rights to a subject invention in the UnitedStates may not be assigned without the approval of the Federalagency, except where such assignment is made to an organia-tion which has as one of its primary functions the managementof inventions and which is not, itself, engaged in or does nothold a substantial interest in other organizations engaged inthe manufacture or sale of products or the use of processesthat might utilize the invention or be in competition withembodiments of the invention provided that such assignee willbe subject to the same provisions as the contractor);

(2) The contractor may not grant exclusivelicenses under United States patents or patent applications insubject inventions to persons other than small business firmsfor a period in excess of the earlier of:

(i) five years from first commercial sale or use ofthe invention; or

(ii) eight years from the date of the exclusivelicense excepting that time before regulatory agencies neces-sary to obtain premarket clearance, unless on a case-by-casebasis, the Federal agency approves a longer exclusive license.If exclusive field of use licenses are granted, commercialsale or use in one field of use will not be deemed commercial

23

APPENDIX II APP.NDIX II

sale or use as to other fields of use, and a first commercialsale or use with respect to a product of the invention willnot be deemed to end the exclusive period to different subse-quent products covered by the invention.

(3) The contractor will share royalties collected on asubject invention with e inventor; and

(4) The balance of any royalties or income earned by thecontractor with respect to subject inventions, after paymentof expenses (including payments to inventors) incidental tothe administration of subject inventions, will be utilized forthe support of scientific research or education.

-. Communications. (Complete According to Instructions atPart b.b. of this Circular).

END OF CLAUSE

24

It'A